On December 22, 2020, the Senate passed stimulus legislation that included additional Paycheck Protection Program funding and relief for small businesses including self employed contractors.
As they did in the original Paycheck Protection Program, Gig Economy contractors with platforms like Doordash, Uber Eats, Grubhub, Instacart, Lyft, Postmates and others do qualify for the PPP loans.
If you have not taken a PPP loan before, you can qualify the same as before:
- You have less than 500 employees (pretty easy to meet this as an independent contractor)
- You had a profit in 2019 (funding is based on average monthly profit)
If you took a PPP loan before, you may qualify for a second loan. There's a hitch though. You need to have had a loss of income of 25% or greater for any quarter relative to the previous year.
If you were in rideshare, you're more likely to qualify. Many of us in delivery won't meet that qualification because that's one business sector where business improved during the pandemic.
That's obviously not a hard and fast rule. If you needed to stay home for medical or safety reasons, or if your market slowed down because of over-saturation of drivers, you may meet the criteria.
Read on to see if you qualify for this next round. Here's what you need to know.
What is the Paycheck Protection Program?
The Paycheck Protection Program was a part of the CARES act passed early in 2020.
The name pretty much says it all. It's designed to protect paychecks for small business owners and employees in the face of the economic impact of the Covid-19 pandemic.
Business owners can take the loans to help cover payroll and certain other essential expenses. If used appropriately, much or all of the loan can be forgiven.
Self employed individuals who are independent contractors with gig economy apps like Uber Eats, Instacart, Doordash, Lyft, Grubhub and other such apps qualify for these loans. They may also qualify for loan forgiveness.
Some who received earlier loans may qualify for a second round of funding through this program.
What are the qualifications for Gig Economy workers to qualify for the second draw of the Paycheck Protection Program 2.0?
Eligibility is mostly the same as it was with the first round of PPP loans. There were some changes that limited availability to larger businesses, but sole proprietors and independent contractors remain eligible.
That means that if you are an independent contractor for gig economy apps like Doordash, Uber Eats, Postmates, Instacart, Lyft, Grubhub and others, you may be eligible.
As mentioned earlier, it appears that if you haven't received funding in the past, you can qualify for the program under the previous guidelines.
To qualify for a second draw (Paycheck Protection Program 2.0) you need to:
- Demonstrate that you were in business before February 15, 2020
- Have a reduction of income of 25% or more for any quarter of 2020 compared to 2019
The purpose of this program is to provide aid to those whose existing businesses were hurt by the pandemic. That's why you had to have already been in business by February 15, 2020.
The big change for independent contractors is the second criteria. The initial version of the program didn't require any proof of being impacted by the pandemic.
That's because things were just getting started. The idea was to encourage businesses who were concerned about potential losses to keep employees on the payroll. Now the pandemic has been hitting us for nearly a year. We've had time to find out if it really has hurt our business.
Once again we have partnered with Womply to help you gain access to PPP funding. Womply is a verified agent that can connect you with lenders who can process your Paycheck Protection Program application. Applications are opening soon. You can begin the process with Womply here.
How does an independent contractor demonstrate that they qualify.
In the original version of the program, sole proprietors had to produce a Schedule C for the 2019 year.
In practice, that more or less meant that they had to be in business by the end of 2019. Those that started between January 1 and February 15 had no practical way to demonstrate they were in business.
I haven't seen any details yet as to if that will change.
Update January 11, 2021: Guidance has come out now from the SBA. It appears that for loans less than $150,000, independent contractors will only need their tax records (Schedule C) to apply. For those receiving a second draw, they'll need to document the loss of income when applying for forgiveness.
Demonstrating a 25% drop in revenue
The second qualification will be more interesting.
Here's how it works. Your gross revenue for at least one quarter in 2020 needs to be 25% less than the same quarter last year.
One thing we need to define real quick: Gross revenue is the money that comes into your business. For those of us who are independent contractors, it's the money and tips paid to us for our work with Doordash, Uber Eats, Lyft, Instacart, Grubhub and any others.
It's the money in BEFORE expenses.
Here's a simple example. You made $10,000 total through January, Feburary and March of 2019 (the first quarter). In fact every quarter of 2019, you made a total of $10,000.
In order to qualify for the Paycheck Protection Program, you have to have made less than $7,500 for at least one of those four quarters.
The language of the bill is written to handle the fourth quarter of 2020 as something you can only use if you are applying later than January 1. I don't expect applications to be ready to go prior to January 1, so I'm writing all of this just assuming you'll be applying after the first.
There are some variations.
They put in some quirky variations to that rule if you started your work as an independent contractor sometime during the year in 2019 or before February 15 of 2020.
If you started your business mid year in 2019, then you compare any quarter in 2020 to the latter quarters of the year in 2019. If you started in the first few weeks of the year, you'll have to compare to the first quarter of 2020.
That's a real simple explanation but this is meant to give the general idea.
This means you have to have good records.
The legislation itself doesn't address exactly HOW you demonstrate your quarterly earnings. They'll have to release those rules in the next couple of weeks.
I'm going to assume that you'll need at the very least a quarterly profit and loss statement. For self employed individuals you may need bank records as well. That part isn't known yet.
What I do know is that it means you need to be treating your self employment gig like a business.
You should have your 2019 records in a format that allows you to produce a profit and loss statement. You need to know what money you received on a quarter by quarter basis.
If you don't already have a bookkeeping system, there are two that you should consider:
Hurdlr. The free version will give you the ability to do the reports you need, and the paid version is even better for helping you keep up on taxes.
Quickbooks Self Employed. Many prefer Quickbooks because it's better known, or their tax people know it better.
I don't recommend Stride if you're trying to do this kind of reporting. Stride isn't real flexible and it doesn't have the settings to provide a quarterly profit and loss report. If you like Stride because it's free, check out the free version of Hurdlr, it works much better for this kind of thing.
Update (January 11, 2021). The SBA's latest guidance provides an insight into what documentation is necessary.
Update January 11, 2021: This is the latest SBA guidance on what documentation is required:
For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. (The revenue reduction requirement is addressed in subsection (c)(1)(iv) of this IFR.) Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements. For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness, as required under the Economic Aid Act.30 If a borrower does not submit an application for loan forgiveness, such documentation must be provided upon SBA’s request.
SBA Interim Final Guidance on Paycheck Protection Program Second Draw Loans
What does this mean?
You need to have business records. As independent contractors we don't have any quarterly tax forms to show our earnings. That means we need quarterly financial statements or bank statements.
I'm interpreting that to mean a profit and loss statement.
How much can you borrow in the 2nd round of the Paycheck Protection Program as an independent contractor in the Gig Economy?
You can borrow up to 2.5 times your average monthly business profit. This is the same as it was the first time around.
If you borrowed in the earlier round of the program and you qualify for this round, you may qualify to participate in this second version as well.
You have the option to use either your 2019 Schedule C as your basis, or the year leading up to your application as the basis. If you didn't work a full year in 2019 you may be better off using the year leading up to your application.
So if you apply in January of 2021, you would choose the higher of your profit between January and December of 2020, or your Schedule C profit from 2019.
More often than not, someone who qualified for aid is going to have higher profits for 2019 than for 2020. There will always be exceptions.
Divide your yearly earnings by 12. Multiply that by 2.5. That's the maximum you can borrow.
Can this round of the paycheck protection program loans be forgiven for independent contractors?
Forgiveness of the second round of PPP loans will work much like the first round.
When the program was first announced, it was written so you could borrow 2.5 months but only 8 weeks worth of earnings would be forgiven. That meant you might have to pay some back.
However, future revisions opened that up to be able to forgive the full amount.
This time around, the full amount can be forgiven for independent contractors.
How do they calculate how much of the loan is forgiven for independent contractors?
My experience is, they calculate it the same way they calculate how much you can borrow.
For businesses with employees, forgiveness is based on how much you spend on payroll and certain other business expenses.
If you're self employed, there is no payroll. How does that work?
For sole proprietors or self employed individuals (which includes most of us who are gig economy workers for Grubhub, Doordash, Uber Eats, Lyft, Instacart and others) forgiveness isn't based on payroll. It's based on owner income replacement.
And how do they calculate owner income replacement?
The same way they calculated the loan amount in the first place: It's based on how much you earned in the past.
In other words, there's a pretty good chance that as a sole proprietor or self employed person, you'll get the whole loan forgiven.
The Second Round of the Paycheck Protection Program is in development.
Right now the SBA has to put together the rules as to how everything will work this time around.
Once those rules are in place, then applications will open up again like they did in the past.
When that's done, we'll have a link for where you can apply for assistance through the Paycheck Protection Program.
Bookmark this page. If you click the heart in the lower corner, you can save this page through that. Check back. I would expect sometime in the first week of 2021 or so things will be opening up.
At that time, more specific rules will be in place and I'll update the page accordingly.
Some applications for the latest round of PPP Stimulus funding are opening on January 11, 2020. You can actually start your application process now through our referral partner Womply. Womply is a verified agent with several PPP funders who can connect you with someone that can process your application as an independent contractor.
